Mofcom Approval Necessary for Didi, Uber deal, say China Regulator

08/02/2016

It needs to review Uber China’s sale to Didi Chuxing but hadn’t received the paperwork, one of China’s anti-trust regulators said in a somewhat surprising admission.

China's commerce ministry (Mofcom) said on Tuesday it had not received a necessary application to allow the proposed merger between the deal to go ahead Chinese ride-hailing firm Didi Chuxing and the China unit of U.S. rival Uber.

Claiming that the two ride-hailing companies' lack of profits meant they weren't required to file with the ministry, Didi said there was no need to seek regulatory approval.

Monopoly concerns could be created by the merger as Didi claims an 87 percent market share in China and Didi's acquisition of Uber's China operations will create a roughly $35 billion ride-hailing giant.

The two firms need to seek approval for the deal to go ahead, said Mofcom, one of China's anti-trust regulators, at a news briefing. As both firms are loss-making in China, it had been unclear previously whether such a filing would be required.

"Mofcom has not currently received a merger filing related to the deal between Didi and Uber. All transactors must apply to the ministry in advance. Those that haven't applied won't be able to carry out a merger" if they fall under applicable anti-trust and merger rules," ministry spokesman Shen Danyang said.

Didi contested Shen's assertion that the firm is required to apply for approval in an emailed statement to Reuters on Tuesday.

"We are in close communication with authorities. Some of the financial metrics of the transaction did not meet the filing requirements. UberChina and Didi are not profitable yet, and UberChina's turnover in 2015 didn't meet the 400 million yuan ($60.30 million) trigger requirement for the anti-trust process," said Didi.

Spending billions of dollars to subsidize rides and win users, Didi and Uber have been in a fierce battle in China. Other players, however, could step up competition.

LeEco, would offer steep rebates to attract passengers to help avoid a monopoly in the market, Jia Yueting, head of the company which is the parent of smaller ride-hailing rival Yidao, said in a social media post.

"Yidao will soon kick off an even more aggressive cashback campaign," according to a translation of Jia's posting provided by a LeEco spokeswoman.

Providing rides below cost have been prohibited by regulations that were released last week that take effect on Nov. 1 even though they legitimize ride-hailing.

Despite the fact that Didi didn’t consult with Mofcom before the announcement came out yesterday, Mofcom will probably approve the deal anyway.

The close relationship Didi enjoy with governments, analysts say, could be one of the reasons as it had defeated Uber China in a two-year long battle. Didi heavily lobbied the government as new ridesharing policies were being drafted this year and China Investment Corp., the country’s sovereign wealth fund, backs Didi.

This very point also bears the potential of low odds of Uber’s deal to sell its China operations to Didi being held up by the regulator. Sources said that most likely the Uber deal was announced a couple days earlier than planned—a quickly solved oversight which probably resulted in the Mofcom flap.